By Legal Futures Associate Recovery First
The continued contraction of the litigation funding market has claimed another casualty, with a well-known personal injury practice recently announcing it will wind down after its funder withdrew financial backing.
The firm, which operated across multiple offices and specialised in clinical negligence and industrial disease claims, filed a notice of intention to appoint administrators after being informed that no further capital would be made available to support its caseload. While its work in progress has been transferred to other firms and efforts have been made to safeguard staff and clients, redundancies have proven unavoidable.
This is not an isolated case. Over the past two years, the litigation funding landscape has shifted dramatically, particularly following the collapse of high-profile claimant firms. Funders have become increasingly cautious, withdrawing from certain case types or exiting the market altogether. For firms heavily reliant on external capital to sustain long-running, disbursement-heavy claims, the consequences can be severe.
The funding model risk
Many claimant firms depend on third-party funding to manage cashflow and disbursement exposure. When that funding is reduced or withdrawn, even profitable firms can quickly face liquidity pressures. Rising overheads, long WIP cycles, and debt linked to acquisition-led growth strategies can quickly become unsustainable where new capital is not available.
In these situations, leadership faces a critical choice: allow matters to deteriorate and risk regulatory intervention or pursue an orderly wind-down or restructuring.
Managing closure or restructuring
The reality for many firms is that closure is not always the only option. Where financial pressure becomes unavoidable, an orderly wind-down can protect client outcomes and preserve value within the business. Early planning allows for controlled file transfers and creditor management. It also reduces the risk of intervention and protects directors from unnecessary personal exposure.
In other cases, restructuring may provide a pathway to continued trading. This could involve exiting high-risk funded claim areas or repositioning the firm towards more sustainable practice types.
To address these challenges, collaboration with niche service providers, such as Recovery First, can be key. As partners, we discreetly manage the transfer of cases to other suitably qualified solicitors, helping to protect value in work-in-progress while ensuring full regulatory compliance.
Recovery First helps law firms withdraw from specific sectors of the legal market whilst ensuring maximum value is retained by the law firm. We work alongside restructuring and insolvency lawyers, accountants, and corporate recovery specialists to ensure the most profitable outcome is achieved on any file transfer agreement.
The litigation funding environment is unlikely to return to its previous risk profile in the near future. Firms that rely heavily on external capital or long-tail claim portfolios should be stress-testing their business models and considering contingency planning before funding pressures become acute.
For some practices, that will mean restructuring. For others, a planned and compliant exit may be the most responsible course of action. What matters most is ensuring decisions are taken early, with a focus on protecting both the business and its clients.
